Guest Opinion: Dodd-Frank: Two Years and Counting

Four years ago, our nation was thrown into the deepest economic morass since the Great Depression. No question, the situation was dire. People lost their jobs and their homes. Banks and companies closed. Government officials scrambled to help bolster our fragile economy.

Regrettably, in their zeal to remedy the situation, Congress used a Gatling gun, the Dodd-Frank Wall Street Reform and Consumer Protection Act, when a much more surgical strike might have been more effective to regulate the bad actors responsible for propelling us into financial turmoil.

It has been two years since the adoption of this behemoth law, the source of approximately 400 rules for the financial services industry.

Where are we now?

According to Davis-Polk, only 55% of the rules required by Dodd-Frank have been proposed. And, as of July 2, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Yet, only 81 of those rules have been finalized. The remainder of the rule deadlines were missed.

The new Consumer Financial Protection Bureau, a direct result of Dodd-Frank, is exacerbating an already complex regulatory landscape. CFPB is tackling mortgage disclosures, credit card disclosures, remittance transfers, student loans and overdraft protection programs, with more to come.

Most recently, the CFPB announced the creation of a credit card consumer complaint database and its plans to reform the mortgage process. According to the CFPB, its consumer complaint database will only include data involving providers with more than $10 billion in assets. But as NAFCU has said all along, the ripple effect will be felt by financial institutions below that threshold, especially credit unions. The bureau also issued a request for comment on extending the database to other financial products, such as mortgages, checking accounts, savings accounts, check cashing services and remittance services.

NAFCU was quick to express our concerns with the database. We fear it may open a Pandora’s box of frivolous and unsubstantiated complaints and potential reputational risks through viral media that could raise unwarranted concerns about the safety and soundness of solid financial institutions.

Of course, the CFPB is not the only regulatory agency that credit unions deal with. The NCUA is examining concentration and interest rate risk, loan participations, credit union service organizations and appraisal management. At the same time, the Department of Justice, the Department of Labor and the Financial Crimes Enforcement Network have continued to issue new rules, in each case without any regard for what any other agency may be doing. But credit unions, that were in no way responsible for the financial crisis, must comply with the mounting burden anyway.

And the compliance burden is enormous. Regulators estimate that it will take American businesses more than 24 million hours every year to comply with just the first 225 of the estimated 400 rules in the law.

The Financial Stability Oversight Council, also a product of Dodd-Frank, is well-positioned to rectify the lack of coordination. Chaired by Treasury Secretary Tim Geithner, the council brings together the heads of the NCUA, the FDIC, the Federal Reserve Board, the Office of the Comptroller of the Currency, the CFPB and federal securities and commodities regulators. To this end, I recently wrote to Geithner urging his leadership to help bring order to this regulatory quagmire.

I asked that the FSOC create robust interagency coordination on the issuance of rules impacting financial institutions. Further, I urged the FSOC to establish policy requiring member agencies to conduct and publish a thorough cost-benefit analysis prior to issuing regulations, a separate cost-benefit analysis a year after each regulation the agency prescribes and another every other year thereafter. I am hopeful that with Geithner’s leadership, the FSOC will help make our regulatory landscape more manageable.

Rest assured, NAFCU will continue the drumbeat on the need for regulatory coordination to help you deal with the overwhelming regulatory challenges you are facing. Despite these challenges, credit unions are doing well and poised to excel in the years to come.

While it will require even greater agility to thrive in this climate, it is not impossible. As Donald Sull, a professor of management practices at the London Business School and author of “Upside of Turbulence” wrote recently: “Market turbulence did not begin with the fall of Lehman Brothers, and it will not end when the global economy recovers.” He also astutely noted that sometimes just staying in the game is the key to long term-success.

That quote is perfect for our industry at this moment in time. We have not only endured and stayed in the game, but are the best positioned among all those in the financial services industry. We hung in there and stuck to our principles when the economy faltered. We even managed to grow to a record-breaking $1 trillion in assets and gain more than one million new members. Now, it is time for us to capitalize on our successes and take our industry to the next level. I have no doubt we have the agility to mitigate and navigate our way through this new and complex regulatory world while continuing to meet the needs of our members.